A New Fiduciary Paradigm Before Year End?

Steven Miyao is kasina’s founder and president of DST’s Distribution Solutions, “a role that involves working with the top global asset managers, insurance companies, advisers and broker/dealers on all aspects of their product strategy, distribution strategy and integration strategy.”

It’s a good position from which to observe the main trends impacting these critical sections of the investment industry, Miyao explains. “We’re integrally involved in each of our clients’ business practices, and a big part of what we do is focused on surveying advisers and distributors on the ground,” he tells PLANADVISER. “This allows us to stay on top of their needs, demands, attitudes, behaviors—all the things driving the investment industry forward.”

Right now one clear point of focus (and concern) among the kasina client base is the Department of Labor’s (DOL) fiduciary rulemaking effort, which Miyao believes will “significantly impact business practices up and down the investment services chain.” By way of background, the controversial rulemaking language is currently under final review by the Office of Management and Budget, with publication expected anytime in the next month to several months.

“All things considered, we are expecting to be living under this new rule by the end of 2016,” Miyao predicts. “When we talk with all the broker/dealers out there and all the asset managers, which again we are doing constantly, we clearly see a consensus has been reached that this is the case. The rule will soon be put into place in a form close to what we have already seen.”

Miyao uses the term “begrudging” to describe the industry’s movement so far to start getting itself in compliance with the new requirements of a strengthened fiduciary rule.

“They put their comments in and tried to augment and change the rulemaking, and the response has been that the DOL will take these things into consideration, but that they are still moving forward very deliberately,” Miyao says. “They are very aware it is an election year, keep in mind. The current administration wants to make sure they put enough of the rule in place, have enough of it established and in actual practice, that the next administration would have a very hard time reversing course without huge disruption.”

NEXT: Does it matter who wins the White House? 

In short, Miyao actually feels the presidential election will have relatively little impact on the new fiduciary rule.

“I don’t think it actually matters all that much who is going to be the next president, Democrat or Republican,” Miyao explains. “There is some potential for a change in course, but once you enact a rule like this and get all the processes and procedures and requirements in place—reversing all that is not as simple as just saying, ‘stop.’ The industry has to prepare extensively for the rule, and they are already preparing for it. They’re going to have to, over the course of the next year, prepare for live implementation, so all the effort and spending will have been put in place for this rule to go ahead by year-end 2016.”

Miyao goes on to explain that the clients he speaks with regularly, whether asset managers or broker/dealers or insurers, are pretty much all resigning themselves to the fate that a new fiduciary rule will soon be put in place.

“In fact, I believe it’s fair to say that the advisory, broker/dealer and asset management industries do not see it as feasible that a Republican president could hope to reverse course on this rulemaking at the start of his or her administration,” Miyao says. “If and when the rule is implemented before the end of the year 2016, it will be with us for some time to come, regardless of the outcome of the presidential election.”

Miyao adds that the “only way I can see there being a real impact from the presidential election with regards to the fiduciary rulemaking effort” would be if a federal district or appellate court agreed to put a stay or temporary injunction on the rule, before it goes into effect. This would require some pretty hefty legal maneuvering in a short period of time by the opposition, but it is still a possible outcome.

“It’s important to note that ’before’ is the operative word here,” Miyao concludes. “If a stay is not put into place and the rule actually goes into effect under President Obama, then the train will have long left the station by the time a new president comes in.”